Auto-Enrolment Minimum Pension Contribution Rates Increase: What Changes to Expect
The minimum contribution rates for ‘automatic enrolment’ or Defined Contribution pension schemes in the United Kingdom will increase with effect from 6 April 2019. Learn what changes will this bring and the key points for workers and employers to consider.
All employers and workers under the purview of Defined Contribution pension schemes used for automatic enrolment will now face a hike in minimum contribution rates from 6 April 2019. The United Kingdom’s automatic enrolment requirement makes it mandatory for employers to enrol their eligible employees into a profitable pension scheme. However, the recent news comes as a major jolt to the workers as the minimum amount they need to pay into their pension schemes will triple in value this year.
From the beginning of the new tax year April 2019, employers under automatic enrolment pension scheme will witness a minimum contribution increase from 2% to 3%. On the other hand, the minimum contribution payable by employees will increase from 3% as of the current rate to 5% under the new scheme. The rise in auto-enrolment minimum pension contribution may cut down take-home salary for some employees but in the long run, it will ensure higher income at retirement.
What are the Changes?
Refer the table below to understand the current rate applicable and the minimum contribution you must pay under the new law:
|Date||Minimum Contribution (Employer)||Minimum Contribution (Employee)||Total Minimum Contribution|
|Current rate: 6 April 2018 to 5 April 2019||2%||3%||5%|
|New rate: 6 April 2019 onwards||3%||5%||8%|
To remain qualified for auto-enrolment requirements, the total minimum contribution amount must be paid to the pension scheme. The employer must pay the minimum employer contribution while the worker must make up for the difference.
Most employers and their workers fall under the purview of pension schemes that require a total minimum contribution of 8% from April 2019 onwards. For such schemes, the calculation will be determined on a particular range of income – between £6,032 and £46,350 per year for the 2018/19 tax year.
- The minimum pension contribution amount the employer and the employee are required to pay will vary based on the type of scheme chosen and the rules that apply.
- Employee contribution may also vary based on the type of tax relief applicable under the chosen pension scheme.
- Include the following when calculating contributions for pension schemes with 8% total minimum contribution requirement:
- Statutory maternity pay
- Statutory sick pay
- Statutory adoption pay
- Ordinary or statutory paternity pay
- If you are using a pension scheme that requires varying minimum contributions, find out what increases apply to you as an employer when considering different parameters of staff pay.
- As an employer, it is your responsibility to set up these increases before 6 April 2019. Calculate what increases apply to you. Determine which employees the new rate applies to. The law is applicable to all employees whom you have enrolled into a pension scheme and in which you contribute. It does not apply to workers who are into a scheme that you do not pay into.
If you are an employee, you can either choose to pay at the higher rate applicable, opt out of your pension scheme altogether or continue paying at the old rate.
For more information, seek expert advice today.